2016 H1 Economics CSQ 1 ans TYS

© Property of Anderson Junior College 1 N2016 H1 CSQ 1- suggested answers (a) Using the data from Fig. 1, summarise how the cost of living in the UK had changed over the period 2008-2014. [3] The cost of living has been rising constantly over the period due to inflation rate being positive throughout. [1m] The cost of living increased by the greatest extent towards the end of 2008 before the rate of increase in cost of living fell to its’ lowest point in October 2009. [1m] Subsequently the rate of increase in cost of living increased gradually till the end of 2011 and it has been falling since then. [1m] (b) Using Fig. 1, explain how the data might be used to estimate changes in the average standard of living in the UK over this period. [3] In 2008, the growth in real wage is about 2% [4%-2%]. Meaning in 2008, the increase in wage is rising faster than inflation rate and this lead to a rising real wage. Therefore, there is a rise in purchasing power. In 2014, the growth in real wage is -0.3% [1.4%-1.7%]. Meaning to say the increase in wage is rising slower than the increase in inflation rate and this lead to fall in real wage. People now has lower purchasing power. Thus, there is a change from a higher purchasing power to a lower purchasing power from 2008 to 2014. Thus, there is a fall in ability to purchase goods and services for consumption and there is a fall in material standard of Iiving. (c) With reference to Extract 1: (i) Suggest how the overall inflation rate over the period 2008 —2013 is possible, given the rise in food and energy prices over the same period. [2] The overall inflation rose by 20 % although food pri ces rose by 30% and energy prices rose by 60%, faster than overall inflation rate. This is possible as the overall inflation rate is measured by the Consumer price index (CPI) which tracks the changes in prices of a weighted basket of goods and services consumed in the UK. For overall inflation to be lower than the increase in food and energy prices, this suggests that food and energy do not form significant components of a consumers’ total expenditures of goods and services. (ii) Comment on the suggestion that higher income earners suffered most over the period. [4] [Perspective 1]There is some validity in the suggestion that higher income earners suffered most over the period as they are on average worse off by 9% while middle income households real income declined by 6% and low income earners were worse off by 2.4%. This is because “earnings ha d increased more slowly than prices” suggesting that real disposable income of the higher income earners has been falling. Compared to lower income earners, the welfare benefits provided by the government has “kept pace with inflation”. This suggests that the purchasing power of the lowe